Published May 11th 2022

Daily Brief - SPX bottom at 3,000?

TL;DR

The equity market’s massive selloff last week deepened yesterday. It may not be enough. Equities could be headed much lower, according to one of the most thoughtful strategists on the Street, Michael Hartnett.

"Past performance is no guide to future performance, but if it were, today's bear market ends Oct 19th 2022 with S&P 500 at 3,000, Nasdaq at 10,000," Bank of America’s chief investment strategist wrote in the weekly note last Friday.

History as a guide

For bear markets, the average price decline is 37.3% and the average duration is 289 days, according to Bank of America research, basing the analysis on nine bear markets in the past 140 years.

So far, investors haven’t experienced dramatic losses yet. According to Hartnett’s analysis, the average entry point for $1.1 trillion of inflows since January 2021 was 4,274 on S&P 500, leaving investors "under water but only somewhat."

Schadenfreude

He may be too optimistic. According to a Bloomberg article, based on the analysis from Morgan Stanley, the situation is more dire. They estimate that the army of retail traders have lost all of the gains earned since the pandemic lockdown (and the incredible stock rally) started.

The calculation is based on trades placed by new entrants since the start of 2020 and uses exchange and public price-feed data to tally overall profits and losses. Some of the big names (and meme stocks) have seen stunning reversals. AMC Entertainment Inc. is down 78% since June 2021. It's lost 49% this year. Peloton Interactive Inc. is off 90% from its record. Zoom, Toast, Netflix … many of the retail darlings fell hard compared to the overall market.

TLI staying at or near the bearish line

TOGGLE insights, too, have been leaning quite bearish on average as summarized by the TOGGLE Leading Indicator (TLI) across 5k US stocks. It entered correction territory a while back (end of April) and has stubbornly remained glued to the low end of the range. (The image below is from last Friday’s Daily Brief.)

A lot of the bearish insights are driven by market prices - momentum, volatility, large price declines … indicative of a market that is suddenly seeing a dearth of “diamond hands.” That, of course, is the kind of cleansing needed for a true market bottom but it makes for a really painful wait.

tli main may 10 2022

How does it end?

Short of a sudden economic downturn that stops the Fed hikes, what can put a bottom into stocks? There are a few possibilities that come to mind.

An obvious one is a peaceful resolution to the Ukraine-Russia conflict that could push energy prices down, helping stocks.

A less obvious one is China ending its Covid lockdowns and opening the stimulus spigots to stabilize its economy. That, too, could boost animal spirits in emerging markets though also likely push energy prices to new highs.

In fact, this moment calls for bringing back the classic chart to remind everyone that in a market grappling with inflation, probability of a recession and Fed hikes, trading can be incredibly painful.

road map

Idea Spotlight: Snapchat

Analyst revision indicators for Snap are deteriorating and historically, this led to a median decrease in price of -46.58% over the following 6M. TOGGLE analyzed 5 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment.

Snap has launched its second piece of hardware – a pared-back and pocket-sized drone called Pixy, designed for taking selfies.

snapchat price history

Daily Brief - SPX bottom at 3,000?

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